Budget fails to cheer sovereign rating agencies

RSTV Bureau
Finance Minister Arun Jaitley with his team outside North Block on 29.02.2016.

Finance Minister Arun Jaitley with his team outside North Block on 29.02.2016.

Finance minister Arun Jaitley’s budget proposals for the financial year 2016-17 failed to cheer sovereign credit rating agencies. While Fithch described the fiscal target for the next year ‘challenging’, Moody’s sought to know the trends on the fiscal road map. However, the biggest among them, Standard & Poor’s has criticised the budget for not improving the fiscal deficit targets as it refused to reconsider the rating for India for two years.

S&P said that Indian Budget contained a number of positives but the roadmap for fiscal consolidation is tepid and there was no room for any positive action in the next two years.

Its grouse arises from the fact that the Finance Minister has stuck to the fiscal deficit target announced last year at 3.9 per cent for this fiscal and 3.5 per cent for the next, skipping an incremental roadmap.

“The Budget has made limited progress in fiscal consolidation and it only modestly reduces the vulnerabilities associated with the low per capita income and weak public finances,” S&P credit analyst Kyran Curry said in a note.
“Without marked improvements in the general government’s fiscal outturns and accompanying declines in net debt, we do not expect to change our rating on India (BBB-/Stable) this year or the next,” Curry added.

“Government’s debt burden and subsidy spending continue to significantly constrain its fiscal policy options,” said Curry, adding “interest payments and subsidies account for almost 40 per cent of total budgetary expenditure.”
Thomas Rookmaaker, director at Fitch’s Asia-Pacific sovereign group said, even the announced “fiscal target is subject to substantial uncertainty and the 3.5 per cent target looks challenging” considering the tepid revenue growth projections for the next fiscal.

Moody’s on the other hand said “from a sovereign credit perspective, it wants to know whether the trend of falling annual fiscal deficits would be maintained in FY16 estimate and FY17 target?”

It also posed queries on how the allocation of government resources towards civil servant pay hikes, and bank recapitalisation would affect FY17 budget targets apart from questioning whether new measures to address the structural challenges over the medium term would be introduced?

(With input from agencies).